• Making the Most of a Promise to Pay Agreement: Terms Recommended in Promissory Notes on Delinquent Taxes
  • August 18, 2014 | Author: David Brown
  • Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Cleveland Office
  • When a delinquent taxpayer enters into a payment plan with a municipality, the plan is usually evidenced by a promissory note signed by the debtor. While a promise to pay does not need to be overly complicated, there are several terms that should be included to ensure proper and timely repayment, and to minimize hassle in the event of a default.

    First, all promissory notes should include an effective date and the full legal name of the borrower. It's also a good idea to require the borrower to provide their complete contact information - including a mailing address, phone number and email address. If you don’t already have it, you can use the promissory note as a means to obtain or confirm the borrower's social security number and date of birth. All of this information is crucial in the event of a default, as it will help you quickly locate your borrower and your borrower's assets.

    Next, the promissory note should contain a clear statement of exactly what the borrower promises to pay. For example: "For value received, I promise to pay to you, at your address, or at such other location as you may designate, the principal sum of $100.00 (principal), plus interest from July 18, 2014 on the unpaid principal balance until this note matures." Of course, you can include an interest rate in this statement to simplify your note. Otherwise, your next term should include the applicable interest rates being charged. Keep in mind that you may want to include a standard interest rate, as well as a separate interest rate in the event of a default. You may also want to spell out any remedial charges that will apply in the event of a late payment, a returned check or a stop payment.

    After describing exactly how much will be paid and the interest rate that will be charged, it's a good idea to list a payment schedule - or some other description of exactly how, when and where payments should be made. In this section, you can dictate the method of payment - cash, check, certified funds, etc. - the date each payment is due, and the address where payments should be delivered. It's also a good idea to accurately list any assets that will secure payment of the note.

    Once the amount of the note and method of payment is established, it's safe to move on to various waivers and admissions by the borrower. First, every note should contain a clear admission of the balance due and a description of how that balance became due, if applicable. For instance, in the case of delinquent taxes, it's best to indicate that a certain amount is due as a result of the borrower's failure to pay a particular type tax, for a specific period of time. Be sure to include an address and parcel number if the delinquency is related to property taxes. Immediately following the admission of balance due, the note should include an acknowledgment that the borrower does not have any valid defenses.

    There are also numerous waivers that can be included. For instance, you can require waivers of statutes of limitations, jury trials, right to notice, etc. However, to be clear, it's best to indicate that the included waivers only apply to the borrower - and not the lender.

    After you've spelled out your admissions and waivers, you'll want to outline the "applicable law", or the body of law that should be applied in the event a court is required to interpret the note after a default. Most of the time, this is the law of the jurisdiction where the lender is located. A proper note should also include a jurisdictional clause, making clear that any disputes will be required to be filed in a particular court or geographical area - again favorable to the lender.

    Finally, in the case of multiple borrowers, you will want to include language indicating that each debtor is jointly and severally liable for the entire balance due and owing on the note. This will allow you to collect the entire balance even if one of your borrowers dies, becomes indigent or simply disappears.

    Of course, the terms and conditions of each promissory note depend in large part on the underlying circumstances for the promise to pay. In the case of delinquent taxes, the type of tax involved will also be a key indicator. The attorneys at WWR are always more than happy to review your standard promissory note and discuss how it can be improved.